On May 9, 2016 the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Guyana 1.
Real economic activity expanded by 3 percent in 2015. Lower export commodity prices and budget delays weighted down on activity, while the opening of two new large gold mines helped support growth. Consumer prices contracted by 1.8 percent in the twelve months ending in December 2015, reflecting lower import prices and a one-off increase in VAT exemptions. The overall non-financial public sector deficit narrowed to 0.2 percent of GDP in 2015 from 5.7 percent in 2014. Despite the slowdown, revenues as a share of GDP increased by 4.2 percentage points, buoyed by fuel excises (which were raised as the international oil price declined), and one-off increases in non-tax revenues. Expenditures as a share of GDP declined by 1 percentage point, driven by a 30 percent decline in capital expenditures due to election-related budget delays. The current account deficit narrowed from 10.8 percent of GDP in 2014 to 4.6 percent in 2015, as the steep decline in international oil prices more than offset lower commodity export prices. Gross international reserves stood at 3.6 months of imports at end-2015. Bank capital adequacy ratios appear comfortable (averaging 23.9 percent as of December 2015), but non-performing loans have increased to 11.5 percent of loans at end-December 2015 from 6 percent at end-December 2013.
The macroeconomic outlook is generally positive for 2016 and the medium-term. Growth is projected at 4 percent in 2016, supported by public investment and two new large gold mines. Twelve-month inflation is expected to remain low at around 2.1 percent by year-end. The 2016 budget reverses the fiscal stance, envisaging an overall deficit of 5.5 percent of GDP, driven by a 4 and a 2.1 percentage point increase in the shares of capital and current spending in GDP, respectively. Revenues are projected to remain broadly flat. Lower oil prices improve the outlook for the current account deficit, which is projected to remain at about 4½ percent of GDP in 2016, financed by investment inflows and donor-supported investment. Reserve cover is projected to increase to 3.8 months of imports at end-2016.
Executive Board Assessment 2
The Executive Directors commended the resilience of Guyana’s economy, which continues to grow despite global headwinds. They noted, however, that challenges and risks remain, and encouraged the authorities to build up fiscal buffers, implement structural reforms, and strengthen the financial sector. Directors welcomed the positive medium term outlook underpinned by an environmentally sustainable and socially inclusive growth strategy.
Directors welcomed the marked improvement in the current account, while noting that Guyana remains vulnerable to changes in commodity prices due to its dependence on imported oil and the concentration of exports on a few commodities. They noted that the exchange rate appears to be broadly in line with fundamentals, and underscored that exchange rate flexibility should play a larger role in helping Guyana cope with external shocks.
Directors stressed the importance of fiscal consolidation in order to safeguard debt sustainability and preserve fiscal and external buffers while maintaining growth momentum. They recommended that fiscal consolidation efforts focus on moderating the growth of current expenditures, in particular transfers to public enterprises, so as to preserve space for public investment while protecting social spending. On the revenue side, efforts to broaden the revenue base and strengthen tax administration were encouraged. Directors welcomed the efforts to reform public enterprises, notably the sugar and electricity companies, in order to improve efficiency and reduce reliance on government support.
Directors encouraged the authorities to move toward greater economic diversification by advancing reforms to promote competition and improve the business climate. Given that the high costs of electricity, transportation and telecommunications have been longstanding impediments to growth, they supported well targeted public investment and liberalizing reforms to lower costs and raise productivity.
Directors noted that the largely concessional nature of debt contributes to resilience and should be preserved. They commended the authorities for taking a cautious approach in factoring in possible future oil income in their medium term fiscal plans.
Directors concurred that the monetary policy stance should remain accommodative, as lower prices for imported goods, including fuel, continue to ease inflationary pressures.
While noting that the banking sector appears well capitalized, Directors recommended heightened vigilance given the rise in non-performing loans, as well as tightening of provisioning requirements and close monitoring of related party lending. They looked forward to a more granular analysis of financial sector challenges by the upcoming FSAP mission.
Directors stressed the importance of strengthening the anti-money laundering and combating the financing of terrorism framework. They noted that remaining deficiencies amplify the vulnerability to de risking, which will require greater international effort to address. They urged the prompt implementation of the action plan agreed with the Financial Action Task Force.
Guyana: Selected Economic Indicators
1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
